Saturday, March 20, 2010

Greenspan Says Fed, Regulators ‘Failed’ During Financial Crisis

Former Federal Reserve Chairman Alan Greenspan said the central bank and other U.S. regulators “failed” during the financial crisis because they became too complacent about risks.

“Even with the breakdown of private risk-management, the financial system would have held together had the second bulwark against crisis -- our regulatory system -- functioned effectively,” Greenspan said in the text of a speech at a Brookings Institution conference today. “But, under crisis pressure, it too failed.”

Greenspan echoed comments he made in a paper released yesterday citing the central bank’s failures to rein in the housing bubble and growth of the largest U.S. banks. Greenspan, 84, who ran the central bank from 1987 to 2006, said low interest rates weren’t to blame for inflating the bubble, placing the blame instead on regulators.

“Even though for years our largest 10 to 15 banking institutions have had permanently assigned on-site examiners to oversee daily operations, many of these banks still were able to take on toxic assets that brought them to their knees,” Greenspan said.

The former central bank chief said he and others at the Fed didn’t fully understand the extent of the housing bubble and its ramifications for the economy. In October 2008 testimony before Congress, he said free-market ideology may be flawed in the wake of a “once-in-a-century credit tsunami.”